Thursday, June 10, 2010

DeadRadio 2020: The Financial Implications

During her interview at the D8 conference, NPR’s President and CEO Vivian Schiller talked about the death of radio broadcasting in the next decade. She referred to it as the end of the monopoly of the broadcast tower.

This posting is about how today’s public radio economy depends almost entirely on the monopoly of the broadcast tower. It is not a debate about the death of broadcasting. We disagree with Schiller's assessment. This posting further plays out the “end of monopoly” scenario.

For decades, the tower was the exclusive source of public radio’s most valuable network programs including NPR News, Marketplace, Garrison Keillor, and the Car Guys. And more recently This American Life and Wait Wait Don’t Tell Me.

Listeners donated money to preserve their stations because they would miss the programming if it were to go away. Businesses sponsored the programming because it was the only way to reach a highly desirable audience. CPB awarded community service grants to stations because they were providing public service programming on a scarce, protected public service broadcast channel.

All three of those revenue sources will be severely disrupted as stations’ monopoly on public radio content weakens. There is no way today’s public radio economy survives as it is today if, as Vivian Schiller suggests, radio broadcasting is dead in the next decade.

Listeners

It is folly to believe that, once radio towers are gone, all listeners will simply transfer their listening to a stream from their local public radio station. Based on current Arbitron AQH data, major market stations would have to support 30,000 to 50,000 simultaneous streams of programming all day long, every day for a single service. Station groups such as WNYC and Minnesota Public Radio might have to support more than 100,000. Stations in medium-sized markets would have to support up to 12,000 simultaneous streams.

That’s not going to happen. Station audiences will fragment once all listening is on the web, once the number of competitors goes from a few dozen, at most, to thousands. Some listeners will stream local stations. Some will listen exclusively to on-demand. Some will listen to out-of-market stations. Many will engage in a combination of the above.

In an all-Internet world, stations will no longer be full participants in the distribution of NPR programming. NPR’s mobile strategy is designed to corner the market for on-demand listening to NPR and minimize that listening through station sites. In fact, NPR has actively worked against stations offering NPR content on-demand.

This fragmentation will significantly reduce the number of listeners to local public media websites and listener loyalty to those outlets. It will decrease the number of core listeners to each outlet. Core listeners are the life blood of a station donor base. Fewer Core listeners on the web, combined with listeners’ ability to access the network programs in the absence of the local station, will result in fewer contributions. We touched on this in a RadioSutton posting some time ago.

Some people believe that providing local news will make-up for the loss of listening to national programs. It won’t. Local news has less drawing power, is more expensive to produce, and has proven to have less fundraising power that the network news. The combination of less audience, fewer pledges, and greater expense will not help the budgets of local public media outlets. The network programs, cheap to acquire on a cost-per-listener hour basis, provide the greatest revenue surplus to stations. Diminish those hours of listening and stations’ net revenues diminish. That will, in turn, diminish revenue to the networks.

Businesses

Radio’s ability to aggregate local audiences at any given moment will never be matched on-line. In many markets, the NPR News programs generate average audiences in the in the tens of thousands. The audience demographics are superb and businesses pay a premium to reach all of these listeners in a relatively uncluttered environment.

Annual contracts in medium to medium-large markets can exceed five figures. Six figure underwriting agreements are not unusual in large markets. Increasing the number of those contracts as the broadcast audience fragments and diminishes won’t happen. Unlike a public radio station, a local public media provider will have more competition for local ad dollars. And local public media outlet’ will be doubly hurt if they cannot put local underwriters adjacent to network content as they can today.

This brings us back to the on-demand piece. If listeners are getting their network on-demand content directly from NPR and not through local outlets, then local audiences will be smaller and much of the cache of local underwriting goes away.

The net effect is less revenue for the local outlet. Among DEI Benchmark stations, local underwriting makes up on average 39 percent of all revenues. Underwriting exceeds membership support at several stations. Major shifts in listening from the radio to the web will reduce business support at most local outlets and the trickle up effect means less revenue for the networks too.

CPB

CPB Community Service Grants exist because of the monopoly of the broadcast tower. Federal funding will come under attack as broadcast towers become less relevant. If federal funding doesn’t go away all together, CPB will be under enormous pressure to fund a wider-range of non-profit media websites that claim to fulfill the same mission currently served by public radio and public TV. Not only will station revenues go down, and network revenues with them, but public radio is also likely to get embroiled in new debates over objectivity and perceived bias in programming.

New Revenues

An argument can be made that the shift from broadcast to web-only service presents new revenue opportunities, especially from major donors and foundations. That might be true but neither of these sources should be considered long-term operations revenue. Financial sustainability doesn’t rest on a few large benefactors.

Back to the Original Point

The original RadioSutton post the death of radio stated that NPR had to be thinking about direct listener fundraising as part of its future revenue mix. We continue to believe this despite Vivian Schiller’s statement that these contributions are the domain of stations.

This year stations will pay some $68 million to NPR for programming services. Local public media outlets won’t have that kind of money to send NPR in 10 years if the radio towers are gone. It would be foolish to believe otherwise. And since NPR is unlikely to slash budgets as stations dollars shrink, there’s only one place to get the revenue -- listeners.

That day might not come soon, but it will come. NPR will accelerate the process if acts as though the towers will be gone in a decade. In that scenario, NPR cuts back or ceases to invest in radio programming , promotion, and fundraising services for stations. In that scenario, NPR continues to develop an on-line strategy that considers stations minor affiliates rather than full partners. In that scenario, NPR is unconcerned with a business model that advances the financial health of NPR and its member stations.

Or, NPR could take the posture that radio is still worthy of investment, that there is growth potential in radio. It could take the position that NPR and stations are better off if listeners can get all programming, streaming and on-demand, from every NPR-affiliated web site. It could take the position that the current public radio business model is a liability today and start working to improve it.

Imagine how much progress could be made on the difficult financial issues facing public radio if NPR put as much effort into that as it puts into developing its own on-line services.

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3 Comments:

Anonymous Anonymous said...

It is clear the NPR has little to no research (or at least research it's made public) to back up Vivian's comments or how the transition to an all digital world will work.

John, you lay out several well thought suppositions. I would be helpful to read NPR's side of the story.

10:42 PM  
Anonymous Anonymous said...

Perhaps Vivian Schiller will have some answers this week. She is speaking at the WIRED Business Conference this morning. Her talk is titled "Reinventing Public Media: How Digital Content is Supercharging NPR" and on June 17th at Big Money's conference—Untethered 2010: Profitable Media in the Tablet Era http://untethered.thebigmoney.com/. Also, she been hiring quite a few digital executives for her management team, so maybe non-profit radio is the least of her worries.

11:14 AM  
Blogger Brad said...

I see more attention being recently paid to the disconnect between stations' long-term needs and NPR's long-term needs. But I think there's a nasty "grey area" where NPR finds itself committed to its own goals at the direct expense of the member stations' goals...but for a while (possibly a long while) NPR cannot survive fiscally as an independent entity. Chaos ensues.

While it would take some serious structural and legal changes, the seemingly-obvious answer (to me at least) is that NPR cuts a deal with the top 20 market stations (give or take) to effectively buying each of them out.

The result is that, either through a sale or LMA, they are NPR-owned but locally-operated. The idea being that NPR then directly benefits from these stations' financial successes. NPR would undoubtedly make substantial structural changes to staff and programming to streamline it into a more national brand and maximize revenue while minimizing costs.

And what of the other ~350 stations that aren't in the top 20 markets? Eh. Who cares about them? NPR will have the big money-making stations, and those will be more than enough to sustain the enterprise. NPR might even be able to drastically reduce (even eliminate) member fees for those stations because they'll make enough off the ones they now own. Although undoubtedly the usage rights for those shows would suddenly be a lot more restrictive...especially if the station in question is anywhere near an NPR-owned station.

And if all those stations left out in the cold revolt and drop NPR? Eh. So what? That's what the internet is for.

Now, granted, I recognize that I don't know anywhere NEAR enough about the finances, politics or listener habits to assess how likely or feasible such a scenario is.

What I do wonder is if anyone has already done such an analysis? Or perhaps more ominously, if someone is currently doing one as we speak?

11:24 PM  

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